As a programmer, a major source of frustration for me regarding many facets of our market relates to the fundamental lack of speed and automation endemic to our financial reporting pipelines. In a system which promotes and rewards algorithmic and high-frequency-trading, any position which would be reported and analyzed as a document and by a human would (and very likely is!) obsolete, potentially wildly so, by the time it was viewed. And the larger the gaps between reports, the more time exists for potentially underhanded tactics to be dabbled in while still eventually returning to a regulatory-approved "status-quo" by the end of the period in question. Even outside a matter of transparency or fairness, these periods without referee can lead to disastrously unmanaged levels of risk across the system, which can be compounded exponentially as participants scramble to acquire reportable positions by reporting time, and further so by any unexpected occurrences (e.g. covid or even just unexpected market action) which disrupt normal flow. As an analogy, imagine if, in a game of soccer, referees were only allowed to make calls every 30 seconds based on a photograph of the field. Not only would nothing ever get caught, but the de-facto rules of the game would instantly change such that the actual mechanics might involve picking up the ball, running across the field, and placing it at one's feet while everyone on both teams fistfought, before returning to perfect sportsmen just in time for the photo. While the move to a shorter or even one-day reporting system would certainly improve things, I strongly urge you push further. If trades can be conducted near-instantly, at high frequency, and automatically, so too must regulation or malfeasance will simply just happen on shorter and shorter timescales by those who can afford to take advantage of them. Reporting *must* be extended to synthetic short positions, if they are allowed to exist, as these positions can and seemingly do lead to some of the highest levels of systemic risk. Frankly, across all types of financial instruments, short or not - if a counterparty is involved and money changes hands or contractually may change hands, I fail to understand why this would not be reported instantly and monitored automatically. To return to our soccer analogy, imagine that the home team was responsible for equipment management. As a result, they're expected to - and are the only ones allowed to - have some extra soccer balls on the sidelines in case something happens to the first one. Our devious home team, however, knows that only being looked at every 30 seconds, they can prepare their team to play with many soccer balls at once! The visitors are not made aware of this; each player on the home team picks up a ball, throws it into the goal, and of course every 30 seconds manages to have all but a single ball in play returned to the sidelines or in the net. When the visitor team complains, the referees send the entire game's photos to the league; the league reviews them, sees no misconduct, and awards the home team its fantastic 347-4 victory and fines the visiting team for making unsubstantiated claims. I understand that publicly reporting short positions in real time is probably not in the best strategic interests of some market participants. Therefore, perhaps limiting public disclosure of these reports might happen on a delayed basis (such as end-of-day or next-day, for example), anonymized, or otherwise with caveats that protect strategies from being exploited. But I believe that anything short of real time reporting and automated regulatory action on reports fails to address the root of many problems at hand and will simply continue to collect the ability to circumvent rules to those with the most capital. Finra must allow the referees to actually watch the field, instead of simply looking at photographs.
Ryan Lonergan Comment On Regulatory Notice 21-19
As a programmer, a major source of frustration for me regarding many facets of our market relates to the fundamental lack of speed and automation endemic to our financial reporting pipelines. In a system which promotes and rewards algorithmic and high-frequency-trading, any position which would be reported and analyzed as a document and by a human would (and very likely is!) obsolete, potentially wildly so, by the time it was viewed. And the larger the gaps between reports, the more time exists for potentially underhanded tactics to be dabbled in while still eventually returning to a regulatory-approved "status-quo" by the end of the period in question. Even outside a matter of transparency or fairness, these periods without referee can lead to disastrously unmanaged levels of risk across the system, which can be compounded exponentially as participants scramble to acquire reportable positions by reporting time, and further so by any unexpected occurrences (e.g. covid or even just unexpected market action) which disrupt normal flow. As an analogy, imagine if, in a game of soccer, referees were only allowed to make calls every 30 seconds based on a photograph of the field. Not only would nothing ever get caught, but the de-facto rules of the game would instantly change such that the actual mechanics might involve picking up the ball, running across the field, and placing it at one's feet while everyone on both teams fistfought, before returning to perfect sportsmen just in time for the photo. While the move to a shorter or even one-day reporting system would certainly improve things, I strongly urge you push further. If trades can be conducted near-instantly, at high frequency, and automatically, so too must regulation or malfeasance will simply just happen on shorter and shorter timescales by those who can afford to take advantage of them. Reporting *must* be extended to synthetic short positions, if they are allowed to exist, as these positions can and seemingly do lead to some of the highest levels of systemic risk. Frankly, across all types of financial instruments, short or not - if a counterparty is involved and money changes hands or contractually may change hands, I fail to understand why this would not be reported instantly and monitored automatically. To return to our soccer analogy, imagine that the home team was responsible for equipment management. As a result, they're expected to - and are the only ones allowed to - have some extra soccer balls on the sidelines in case something happens to the first one. Our devious home team, however, knows that only being looked at every 30 seconds, they can prepare their team to play with many soccer balls at once! The visitors are not made aware of this; each player on the home team picks up a ball, throws it into the goal, and of course every 30 seconds manages to have all but a single ball in play returned to the sidelines or in the net. When the visitor team complains, the referees send the entire game's photos to the league; the league reviews them, sees no misconduct, and awards the home team its fantastic 347-4 victory and fines the visiting team for making unsubstantiated claims. I understand that publicly reporting short positions in real time is probably not in the best strategic interests of some market participants. Therefore, perhaps limiting public disclosure of these reports might happen on a delayed basis (such as end-of-day or next-day, for example), anonymized, or otherwise with caveats that protect strategies from being exploited. But I believe that anything short of real time reporting and automated regulatory action on reports fails to address the root of many problems at hand and will simply continue to collect the ability to circumvent rules to those with the most capital. Finra must allow the referees to actually watch the field, instead of simply looking at photographs.